Asian consumer credit

Turning Anglo-Saxon

Are Asians spending more and saving less?

ASIA is known as a region of dedicated savers. Its reputation worries those who want domestic demand to do more to drive growth in the region, and make Asian economies less vulnerable to the vagaries of the global economy.

A recent note by Raffaella Tenconi of Lombard Street Research, an economic-analysis firm, disputes the notion that Asian households do not spend enough. Household borrowing in some East Asian countries, she observes, is going through one of its strongest booms ever. In Taiwan, Thailand and Malaysia, annual growth in household credit has averaged 15-20% in the past six quarters. Household borrowing has been recovering in Hong Kong and South Korea, having contracted sharply in recent busts.

Financial conditions support spending, according to the Bank for International Settlements' (BIS) annual report. Real interest rates are very low. Banks have become more willing to lend to households, having been burned by corporate losses in the Asian crisis of 1997-98. Banks are also healthier: bad-loan ratios are falling, and returns on assets and capital-adequacy ratios are rising. Throw in rising incomes and a growing middle class, and it is easy to see why Asians are loosening their purse strings.

Will the surge in spending last? Ms Tenconi reckons that there is good reason to think so. Banks still have plenty of scope to lend. The financial sector is also evolving: most of these countries now have some form of credit-information system. If banks remain robust and social-security nets are expanded, spending will be further encouraged. Saving may already be on the way down: Thai households' saving rate fell from 15% of income in 1998 to 6% in 2003. However, total domestic saving in these countries is still very high, ranging from 30% to 45% of GDP.

China is also one of the biggest savers in the world, but there household borrowing is actually slowing down. The government restricted bank lending last year when it realised that a big chunk of mortgages and car loans had gone bad.

Asia's credit-driven spending carries risks, says the BIS. Rapid credit growth can push household debt too high and blow up property prices, to the eventual detriment of the financial sector. Monetary policymakers should watch for such troubles—but in most Asian countries, it looks a bit soon to worry about that.